“The market acts this way because there is no regulation,” says Konstantin Kladko of Skale Labs

According to Kladko, a combination of naive investor protection mechanisms and lack of market regulation led to the recent DeFi 'supercrash'< /p> New

The recent cryptocurrency bear market has uprooted decentralized finance (DeFi) and centralized finance (CeFi) projects in the crypto space. But past performance is not always indicative of future results. For starters, Ethereum price has already recovered 48% in the past few days ahead of the impending Merge upgrade.

At the annual Ethereum community conference in Paris, Cointelegraph spoke with Skale Labs co-founder Konstantin Kladko about the market crisis. Sklae Labs is a decentralized blockchain network built on Ethereum. Currently, it is made up of 28 blockchains where one can send tokens seamlessly from one chain to another. Here's what Klado has to say about the recent contagion:

“The market acts this way because there is no regulation. So pretty much everything that happened on Wall Street 100 years ago [during the Wall Street crash in 1929] is now happening on the blockchain. And unfortunately, while big players have the option of quietly walking away when the market is bad, it's often too late for smaller players."

As the bear market crashed, it turned out that once-reputable projects in the blockchain space, such as Celsius and Three Arrows Capital, were actually using huge amounts of leverage with deposits clients to generate seemingly safe and consistent returns. Their forced liquidations and failure to repay creditors, estimated at billions of dollars, then brought the entire industry down.

Kladko explained that while so-called "decentralized safeguards" are in place to protect investors, they often work poorly under duress. “Most DeFi apps have trivial crash protection. An example of this...